5 Reasons Why You Need To Know Where Is Your Money

One of the comments I got from a friend who's been reading the Where Is Your Money series in this blog is that she doesn't feel the need to go through all the efforts of finding out where her finances are in the short-term, let alone go through the process of recording her daily expenses. She reasons that for as long as she tries to spend wisely, she would be okay in the short and long term.

Rather than say she's mistaken in her viewpoint, I would rather point out some of the benefits of taking stock of your short-term finances, the way we've been discussing over the past weeks:

1. You aren't really sure unless you can see it. Think you haven't been running through a spending spree? Maybe you haven't been doing it in a day, but the little things here and there everyday do add up, oftentimes unnoticed.

2. You don't know where to make changes. This one flows from the first reason. Without some information on your spending patterns over a period of time, you won't know what changes you can make to free up some cash or use your money more wisely.

3. It starts with being faithful with the little. You've probably heard it said: penny wise, pound foolish. True, some people can be so careful with the small details, and mess up the big things in their lives. But I doubt if you would ever hear a saying that goes something like "pound wise, penny foolish".

4. The details are not the end in itself. For most people, a budget simply shows them where to cut back and what to modify. That by itself can already provide significant improvements to one's finances. But financial planning takes more than that. And knowing the details of one's finances provide the information one needs to prepare for such things as how much should you have in an emergency fund; knowing what, where, and how much to invest; contributing to a retirement fund; and others. All of these and more we will tackle one by one in future posts.

5. Lastly, good habits beget good habits. The discipline of being aware about one's finances rubs itself off to other areas of one's life, as well as the lives of people around us. Hopefully it can affect for the better the way we handle other areas of our lives, bringing us closer to the essence of true wealth.

I hope that this post could convince my friend and you as well. It's never too late to start taking better care of your finances.

Where Is My Money? Part 3 - The Beginnings of a Budget

I hope you were able to go through our little exercise which started last week, as you can read HERE. If you haven't been able to even start or had missed out on some days, you can always try again this week. And unless your routine changes significantly week after week, a week's worth of recorded expenses can start you on your way to developing a budget.

Too many people start on a budget but fizzle out almost as soon as they started. There are a number of factors that contribute to such short-lived initiatives:

1. They don't know why they do it. They don't realize that budgeting is all about living out a lifestyle. If you're a bit lost yourself, maybe you can start right HERE.

2. They don't know where to start. Despite the availability of so many guides and how-tos, people still end up feeling stuck at the start, not knowing how to proceed. It's possibly due to conflicting approaches or ones that require them to change too much too soon. That's why we started with something simple in this blog, as you can read HERE.

3. They don't have much with to start working on. That's why we went through a bit of an exercise on recording our expenses, to give us a headstart on what are we looking at.

Ultimately, a budget is a personal exercise. And the less I impose on stuff here (like how to record, where to summarize, etc.) and stick with providing some sort of a roadmap, the more likely you can come up with something that fits you (believe me, you are that smart). Even my own approach is still evolving and will continue to do so. What doesn't change are a few basic items.

So, what to do now? If you already know your disposable income (as discussed previously HERE), you can deduct from it an estimate of your monthly personal expenses with the week's worth of expenses that you recorded (just multiply by 4, or maybe divide by 7 and multiply by 30 or 31). Hopefully, you will come up with some excess cash. If you did, Congratulations! But before you pat yourself in the back (which you probably deserve), just go over your expenses one more time to make sure of two things:

1. You didn't left out any significant expense. Most of the time you won't really get to realize it, especially with just a week's worth of information. As you gather more weeks of information, you can actually check if you haven't recorded some regularly recurring items, and adjust accordingly.

2. You recorded expenses not paid in cash. Maybe you've swiped your card for that lunch? Or that book? Otherwise, you will be creating the illusion of having excess cash when you actually are living on credit already.

Now, if your expenses exceeded your disposable income, you now know you are probably living on credit or off your savings. And if that trend continues, you can end up in some financial mess. Which is precisely what we will try to address in the coming weeks.

Make sure to brush yourself up on the previous posts, and start on some of the activities if you haven't done so. See you again soon. I will be more than glad to hear from your experiences so far.